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|Carolyn M. Tobin, M.A.
|Vincent J. Bono, J.D.
The Federal Retirement 80% Rule
In order to retire with financial freedom, and stay retired enjoying that same financial freedom, your post-retirement income should be at least 80% of what your income was on the day before you retired. If you have 30 years of federal service when you retire, our Calculator will illustrate that your Pension and Social Security (if FERS) will range between 55% to 58% toward that 80%, leaving it up to your savings, TSP and/or a Tax Qualified TSP Alternative to make up the difference.
Fully understanding these Tax Qualified TSP Alternatives is the first step towards enjoying a safe, secure and long-lasting retirement. In 2008, many of your fellow federal employees who had planned on retiring in 2009, didn’t retire because of massive losses in their TSP Funds. If they knew and understood their Tax Qualified TSP Alternatives, we venture to say that they would have retired in 2009 and still be retired today.
We have developed a “Three-Step” approach to helping federal employees retire on their own terms, and more importantly, staying retired, without the fear of ever running out of money.
Step # 1
Our TSP Comparison Calculator: Allow Todd and Carolyn 15 minutes of your time to teach you how to use our online calculator, which will help you compare your projected TSP C, S, I, and L Fund performance to that of an IRS Tax Qualified Alternative, using as many variables and data sets of your choosing.
If after Step # 1, you are interested in learning about Step #2 and Step # 3, set up a second call with Todd and Carolyn and begin the journey of better planning for your retirement!
By Mark Zandi
If you are a stock investor, buckle in.
Investors have enjoyed an amazing run. Stock prices are up by nearly a third over the past 18 months and seem to be hitting new record highs daily. And the run-up has been almost a straight line, with stock price volatility—the ups and downs in prices—the lowest it has ever been.
But if you are an investor, soak all of this in, because it will soon be nothing but a memory. The stock market is due for a significant correction—defined as a greater than 10% decline in stock prices—and stock returns in the next several years will be very pedestrian if they increase at all.
It’s not that the stock market is a bubble ready to burst. Bubbles are created by speculation, when investors buy a stock simply because its price has risen strongly in the recent past, and therefore conclude it will rise strongly in the foreseeable future. This clearly characterized the tech bubble that inflated around Y2K. Investors piled into the stocks of dot-com companies, many without even understanding what the Internet was. Most of the companies weren’t making any money, and few had business models that seemed likely to ever generate profits. That bubble was also fueled by margin debt, as investors borrowed aggressively against their stock holdings to purchase even more stocks.
To be sure, there are speculators in today’s market, as is clear from surging prices for the FANG companies—Facebook, Amazon, Netflix, and Google. The difference is that these are real companies that share a compelling business model—build out a massive global network of users that rely on their quickly evolving products and services. Today’s investors are also being discerning by shunning the stocks of companies that don’t have a clear story—think Twitter or Snap. And investors remain cautious users of margin debt, which is no higher today than it was in the heyday of the tech bubble.
My skepticism around stocks is also not rooted in some fear that the broader economy is ready to tank, thus undermining corporate earnings and the stock market. Every recession is presaged by a downturn in the stock market, but there are many cases historically where stocks decline and the economy keeps ticking along. This will be one of those times.
The economy and corporate America are in good shape. Corporate profits, the fundamental support for stock prices, are being powered by solid revenue gains, particularly now that the global economy is back on track and the U.S. dollar is no longer rising in value. Margins are also wide despite businesses’ difficulty raising prices more quickly, because they’ve done a great job managing costs.
So why am I pessimistic? The stock market is overvalued. That is, stock prices are much too high despite the good outlook for corporate earnings. The only other time in the past half century that stock prices have been so highly priced was during the tech bubble. Yes, they’re even more overpriced now than prior to the 1987 market crash.
Corporate earnings are good, but they are set to grow more slowly, since businesses will have to give their employees bigger pay increases to hold onto them, let alone hire new workers. With unemployment falling toward 4%, wages will slowly, but steadily accelerate. Businesses will respond by raising prices more quickly, but they won’t be able to pass through all of their higher costs to customers. Margins will come under pressure.
Intensifying wage and price pressures means that the Federal Reserve will need to raise short-term interest rates more consistently, and begin to wind down its balance sheet, which will cause long-term rates to rise. It is hard to see investors being as enthusiastic about stocks when interest rates are rising. Higher rates will also make it more expensive for businesses to borrow money to buy back their stock, a common practice in the current bull market.
Then there is Washington. So far, the dysfunction there hasn’t been a problem; it has only meant that lawmakers have done nothing. That is fine for a growing economy. But doing nothing won’t be a winning strategy for much longer. Lawmakers must soon agree on a budget or risk shutting the government down, and they must raise the Treasury debt limit or risk shutting down the global financial system. Tax reform would be nice, but odds are that if there is reform it will fall short of what investors desire.
Of course, there is no timing a stock market correction. It could happen tomorrow, next quarter, or next year. But that time is at hand.
Mark Zandi is chief economist at Moody’s Analytics. He has investments of all of the companies mentioned in this article.
Fund manager says market set for 60%.
By Jeff Bukhari
That’s the view of John Hussman, president of the mutual fund Hussman Investment Trust, seasoned investor, and Stanford University economics PhD. Hussman says you can expect the S&P 500 to return no more than 1% on average over the next decade. Sooner than that, he predicts, the stock market may plunge as much as 60%.
Hussman, who called the tech crash of 2000 and once managed a nearly $7 billion mutual fund, calls the current environment “the most broadly overvalued moment in market history.” And he says investors shouldn’t expect much in returns from stocks or bonds.
Why so bearish on the market?
Hussman looks at his own proprietary measure of the market. That metric looks at the value of all non-financial stocks relative to a specialized earnings measure, which Hussman calls value-added. Based on his analysis, Hussman says the market is as overvalued as it was back in 2007, and just 5% away from its lofty valuations right before the peak in 2000.
But Hussman’s main point is that back in 2000 and 2007 there were a relatively small group of super-expensive stocks, including technology, and later finance and housing companies, respectively, that drove the average valuation of the stock market much higher than normal. Today, it’s the median, not the mean, S&P 500 valuation that sits well above the peaks seen in 2000 and 2007, indicating that there are far more companies these days that’s shares trade at much higher-than-normal valuations. That’s why Hussman says the risks of investing in the stock market right now are much more widespread and scary than they were in the past.
Indeed, stocks have now gone eight years without a bear market—a drop of 20% or more. That’s much longer than usual and a red flag for many warning that the market is due for a dip.
Hussman says investors have been mesmerized by low interest rates. But low interest rates also signal a sluggish economy, which will translate to lower revenue figures. Historically, if the economy picks up, interest rates will rise. That will boost earnings, but the high interest rates will make those earnings worth less to stock market investors. That’s what appears to be happening now.
Of course, before you call your broker yelling, “Sell,” consider this: Hussman ability to predict where stocks are headed appears to be waning. Hussman gained fame in 2000 and again in 2008, when he predicted stock market crashes and was able to save his investors from much of the losses in both market drops. Investors flooded into his main fund, the Hussman Strategic Growth Fund, and its assets under management grew to $6.5 billion. Recently, Hussman’s returns haven’t been that good. Last year, the fund was down more than 11%, while the stock market, as measured by the S&P 500, was up about the same, including dividends.
What’s more, investors seem convinced that Donald Trump and his raft of policy proposals, including cutting taxes and spending money on infrastructure, will goose the economy and the market.
That hasn’t stopped Hussman from continuing to sound the warning alarm. Hussman points out that salaries as a share of GDP are close to record lows, and corporate debt is near a high. Profits, he argues, are sure to go down, when companies are forced to pay more to both their workers as wage pressure increases, as well as to their lenders as interest rates rise. In addition, any cuts to corporate taxes, Hussman says, likely won’t help nearly as much as is anticipated, because the effective corporate tax rate is already near the lowest level in history.
The stock market may continue to go up, but if it goes down, Hussman will be able to say, “You were warned, again.”
Mark Faber, CNBC
It’s going to end ‘extremely badly,’ with stocks set to plummet 40% or more, warns Marc ‘Dr. Doom’ Faber
- Marc Faber, the editor of “The Gloom, Boom & Doom Report,’ isn’t backing down from a dire prediction that would send stocks free-falling by 40 percent or more.
- He argues the stock market could see another “lurch” higher, but then investors may want to run for cover.
- If the man often hailed as the original “Dr. Doom” is right, the stock market could see another “lurch” higher — at which point investors may want to cash out quickly and run for cover.
- Marc Faber, the editor of “The Gloom, Boom & Doom Report’ and a perennial bear, isn’t backing down from his latest dire prediction that would send stocks plummeting by 40 percent or more.
- A drop of that size could take the S&P 500 Index down from Friday’s closing price of 2,438 to 1,463.
- He used the meteoric rise of FANG stocks, which reflects Facebook, Apple, Netflix and Google (Alphabet), as a glaring bearish signal.
- “We’ve had more than eight years of a bull market. The Nasdaq is being driven by very few stocks,” said Faber on Friday’s “Trading Nation.” That rally “is not a particularly healthy sign from a technical point of view, and valuations are very high,” the investor added.
- Faber’s comments come exactly two weeks after the Nasdaq set its latest intraday record high of 6,341.70.
- “You know we have a lot of volatility, and when things will start to go down, they’ll go down a lot,” he said.
- Faber is deeply concerned that wealth has flowed to big corporations and affluent people. He believes the imbalance could eventually disrupt the markets as we know it.
- “Either people with money will be taxed heavily … or we’ll have a massive deflation in asset prices — I repeat: massive,” he warned. “Eventually the system will break.”
- Faber is known for correction calls over the years which have never materialized. But he’s sticking by his latest call, acknowledging critics have “questioned my sanity.”
- “We could print enough money that the Dow goes to 100,000. All I’m saying is it will end very badly, extremely badly,” he said.
- But it’s not all gloom. Faber notes it could also give investors a rare “out-sized” buying opportunity si